Reviewing the history of internet development in the past few decades, it can be summarized as three different stages: Web 1.0, Web 2.0 and Web 3.0. Web 1.0 is generally considered to have begun in early 1990s offering basic read-only webpages without any user interaction. Web 2.0 came roughly at the beginning of 21st century and continued to today, where users not only read but also create the content based on various social media platforms namely YouTube, Twitter and Meta（Facebook）. If Web 1.0 is a one-way highway requiring users to receive information passively, Web 2.0 realizes two-way UGC (user-generated content) production. Afterwards Web 3.0 was proposed around 2018 with the rapid development of blockchain technology, which protects the sanctity of personal property and more voices from individuals in front of institutions. Web 3.0 is a decentralized network that gives users the ownership of their data and all participants involved have equities over the whole ecosystem. At the present, we are in the transitional period of Web 2.0 and Web 3.0, excited about users’ power in Web 3.0 era but still obsessed with Web 2.0’s mature products. In this writing, we will discuss the differences between Web 3.0 and Web 2.0 regarding the stakeholders as well as underlying paradigm shift. Also, Web 3.0’s eight prominent attributes like ownership, user acquisition and others with a number of examples are illustrated here to give a clearer picture on the next generation internet.
1.1 Diversification of stakeholders
The former internet governance mode was aligned with the traditional corporate governance method, which everyone determined their voting right based on the equity ratio. The resolutions of the corporate are decided by shareholders whereas other parties like users do not have discourse power. Instead, in Web3 projects, stakeholders get more diversified, including founders, investors, users and developers. The realization of this decentralized governance paradigm is inseparable from blockchain technology. To be specifically, people who hold the tokens in the whole ecosystem have the governance right, which is reflected in real voting to determine the direction or route of the project. Simply put, as a user in Web2, the rights are controlled by centralized platforms, while Web3 allows all participants to regain their power including ownership, participation and governance.
For example, regarding the fund raising of projects, if it is in a traditional mode, the financing will certainly involve only the founders and VC, which will not consider other stakeholders and participants. However, for most Web 3.0 fund raising, tokens allocated to the founding team will not exceed 30% in general cases and the remaining tokens will be given to communities or other contributors. The higher the proportion of founders or foundations, the more centralized they are, and the more they operate like an internet company. In contrast, the fewer tokens controlled by founding teams, the more they are like a Web 3 community. Take Ethereum as an example, Ethereum is a highly decentralized community developing autonomously. Vitalik owns only a small portion ETHs as the founder but his voice in the Ethereum foundation depends on the real value and recognition he contributes to the community rather than how many tokens he holds. The underlying logic is that the founding team spread out their ownership to more people who are keen to contribute to the network and make the network grow rapidly. Along with the increase of Ethereum’s market cap, although Vitalik holds a small portion of ETHs, his personal net worth is even higher.
1.2 Users being plug-ins in the network
Users’ role in the network is another critical difference between Web 2 and Web 3. Users are bonded with the centralized platforms and all rules are made by internet corporates. Instead, Web 3 projects are striving to remove intermediaries, where users can be plug-ins in the ecosystem as independent individuals.
Take gaming industry as an example, traditional game companies tend to extract users’ value, making players deposit money in games to achieve powerful or fancy items. In Web 3.0 era, of course, users are required to contribute their time and effort to the ecosystem, but they can earn tokens in return by playing games. Axie Infinity is a blockchain-based battle game, in which players can earn SLP tokens during the game play and trade them in exchanges. At the same time, AXS token holders can vote on governance proposals and have a boarder effect of the project’s direction. A GameFi movement has been emerging around Axie with a ton of scholars in the third world countries joining various play-to-earn (P2E) guilds. These P2E guilds lend NFTs to scholars as initial entry assets and provide strategic guidance of the games.
To summarize, internet companies are taking advantages of users whereas Web 3.0 users can realize values through their time and skills. Throughout the entire process, users can not only read and write on platforms, but also participate and control the network. Internet traffic represents value in Web 2.0 whereas Web 3.0 people believe users’ rights and participation represents value.
2. Differences between Web 3.0 and Web 2.0 – Underlying paradigm shift
Except for the stakeholders and governance, Web 3.0 has multiple underlying paradigm shifts over Web2.0. The major perspectives are summarized in the following table:
2.1 Underlying Technology
Web 3.0 and blockchain technology are usually linked together, covering multiple perspectives including digital currencies, protocols, infrastructures, and decentralized applications. Digital currency namely Bitcoin can realize the sanctity of personal property on the technical level. The issuance, transmission and storage of tokens are completely decentralized, which is empowered by distributed ledger, asymmetric encryption, consensus mechanism, smart contracts and other technical means. The underlying distributed economic system is the most critical difference between Web3.0 and Web2.0. A protocol is a set of rules that govern a network including rules for consensus, transaction verification and network participation. Gavin Wood once stated that the protocols driven by consensus engine and cryptography can realize more powerful network social contract. Gavin also explained the ultimate goal of Web3.0: "less trust, more facts".
Infrastructure of Web 3.0 is divided into software and hardware, covering payment, storage, domain names, node service and many other spaces. Take Metamask as an example, the digital assets in the Metamask are completely self-hosted, avoiding any risk related to privacy disclosure or asset loss on centralized platforms. With decentralized wallets, users can manage their assets autonomously by authorizing protocols voluntarily. As for the Web 2.0 payment system like Paypal or Alipay, the transmission or storage of users’ assets are inseparable from centralized internet institutions or banks. The last layer is about upper applications like DeFi, NFT, Metaverse and other broader narratives. On the application level, Web 3.0 is trying to link content and users directly to build verifiability on networks.
2.2 Business Model
Apart from underlying technologies, commercial modes vary enormously in Web2.0 and Web3.0 worlds. Internet companies’ business model is information oriented, which means all the business activities are around the information and value created by information disseminated is how Web2.0 corporates make profit. When it comes to Web3.0, the focus of economic activities shifts from information to business value itself. As GameFi and DeFi mentioned above, “Fi” (how to make money) becomes the most important theme in Web3.0 era.
A typical example is SocialFi, SocialFi means the influence of individuals or communities can be materialized. In current stages, creators on Instagram, YouTube or other Web 2.0 platforms do not have the ownership of their content and high commissions of the advertisement revenue are collected by Big Tech companies. On Web 3.0 protocols, creators can have content mining, which means using tokens as a medium to promote the matching of content contribution and income acquisition. In addition, creators’ work could be traded as an NFT, allowing creators to gain continuous income from secondary sales. Neal Mohan, YouTube’s Chief Product Officer, has announced YouTube’s product development plan in 2022: YouTube is planning to enter NFT and metaverse spaces, allowing creators to sell their videos as NFTs and establish better interaction with fans on the monetization level. Additionally, these days more and more innovative business models are emerging: learn-to-earn, create-to-earn, write-to-earn, move-to-earn, judge-to-earn, appreciate-to-earn and so on. In short, the concept of ownership economy is no longer limited in the field of infrastructure, more Web3.0 projects have brought this concept to the upper level applications such as finance, social networking, consumption and society. Web 3.0 is doing what Bitcoin did to currency and applying to current internet.
2.3 Investment/Financing Logic
As the example of Vitalik and Ethereum mentioned above, Web 3.0’s financing logic is to share the ownership to diversified stakeholders and all the parties involved will try to make the project a bigger pie. If the project has a bigger market cap, the value of single share will increase. Although the founding team’s equity is diluted, the total value is still growing. The shareholding in Web 2.0 corporates is centralized, in which other stakeholders’ equity is conflict with the founders’ interest. The founding team does not choose to give away their equities since the founders’ value acquisition in internet companies depend on their shareholding proportion.
In addition to the founders’ mentality, Web 2.0 and Web 3.0 projects have different evolvement periods. The growth cycle of an internet company usually starts with the founder’s idea and a business proposal, following fund raising, trademark registration, recruitment, purchase of equipment, product development, acquisition of users and promotion. If that is the case, at least half a year or even longer could the founding team receive feedback from the market. In Web 3.0, after the developers come up with an idea, they can select an ecosystem to deploy smart contracts and find talents in the community to help in developing or marketing. If a ecosystem with numerous users and applications like Ethereum or BSC is selected, some of the users on theses chains will join the community naturally. Throughout the entire process, the Web3.0 project founders do not need to register a company or do market research, even a whiter paper is not compulsory. After the code runs on blockchains, the quality of the project could be tested immediately. Specifically, if there are errors in the code, the smart contract will be hacked. If the token economy model is not well designed, the incentive pool will get drained very soon. Conversely, successful projects can witness a sharp increase of token prices in several days or weeks. In conclusion, the threshold to launch a business and cost of Web3.0 are very low since all the infrastructure and basic community participants are easily to acquire. The rhythm of getting market feedback is very fast, and trial and error cost is relatively low.
2.4 Production Relationship
In the COVID-19 situation, remote working has become a common working style, and this mode is tending to be a universal trend. In addition, the employment relationship between employees and employers is changing to a short-term or flexible working pattern, which indicates the great potential of decentralized employment and gig economy. In traditional Web2.0 corporates, individual employees usually serve the same company with a fixed position for decades.
DAO and Web3.0 platforms make the company more like a liquid organization with blurred boundaries. People can work for several organizations with flexible positions to achieve maximize production efficiency. Take Bankless DAO as an example, Bankless Dao has 13 guilds in writing, finance, translation, research, operation, marketing, law, education, design, business development, developing, design and so on. Most guilds and groups are managed through voluntary participation and voting by their members. Participants can write their names and expertise on the notion and get a job in this decentralized organization. Currently the salary is determined by working hours with an hourly rate of 1000$BANK. Talents can have a more flexible , dynamic and independent working environment in the decentralized employment system.
2.5 User Experiences
Web3.0 is striving to return users‘ power and data ownership to users themselves, but at the expense of user experience sacrifice. These days, people around the world enjoy the free services, smooth user experience and mature commercial modes on Web 2.0 platforms. As for Web 3.0, many projects are suffering from compatibility or scalability problems so lower network cost as well as high efficiency are still wanted. But it is great to see that more and more projects are trying to make innovative attempts to fix user experience problems on both infrastructure and application levels.
3.Prominent attributes of Web 3
3.1 Ownership belong to users disrupting traditional zero-sum game
In internet companies and traditional companies, founders have absolute control, and they are extremely sensitive to their equity dilution. From seed round, all the way to the IPO, founding team will always be majority shareholder. However, if it is a pure Web3.0 project, the thing is different. Tokens (denoted as ownership certificate) are expected to distributed to users at the very beginning to let more and more people participate in this project. To build better blockchain world, optimistic prospect is needed. Besides, rational of doing things is to collaborate together to make the pie bigger. Traditional internet services are more of a zero-sum game, where companies are struggling for market share, so permit is essential in letting less players to join (dividing the pie). Web3 is particular about sharing, the underlying infrastructure is running in open-source pattern; people share equal chances to access the market and utilize community resources. Based on the open market, community governance and mutual trust are established, a very low-cost trust mechanism for businesses ensued by blockchain technology. Everyone believes what happens on blockchain is real and verifiable.
3.2 Community governance instead of cooperate governance
In commercial world, corporate governance is running according to the proportion of equity of each share holders, so the board constituted of major shareholders(>50%) can always jeopardize the interest of minor shareholders. However in the Web3 projects, given tokens are evenly distributed, all tokenholders have discourse power, and can public join the voting to determine the direction of the project, roadmap, all the things.
There are two examples to reflects this phenomenon. The first one is Sushiswap. The founding team proposed to sell tokens worth about $60 million to some traditional VCs as founding team believed this could bring strategic resources to the project, but the community strongly opposed this plan. The first rational is whether they can really bring strategic resources. Second, the discount was based on the average price of the last 30 days, which seem not fair and lack of sold valuation basis. Third, community needs a referendum to decide. The opinions from community are heavily valued and VC's voice is not as loud as it is in Web2.0 era.
The second example is EOS. Founder BM is a tech talent and he is backed by the management team with Wallstreet background. After BM left, BlockOne fall under control by these financial guys. Then the EOS nodes found that foundations are doing something not aligned with community, then voted expel the rights of BlockOne through the way of controlling the majority tokens. This also could happen in the traditional Internet world, however in the blockchain world, technology supported community voting can make this feasible instead of boarding meetings.
3.3 User Acquisition by value sharing
Traditional user acquisition is more about pushing product out to market and letting people know, whereas Web3.0 is about attracting users by share values.
The user and blockchain is loosely coupled, the user is a "plug-in", inserting in blockchain project as part of the ecosystem.
The traditional game industry is extracting value from users. In the blockchain world, of course the user contributes time and money to the ecosystem, but the user also gets value by ways of airdrop or minging/staking. For example, Axie's play-to-earn, all the ways of to-earn, are to monetize users' resources. If users put data, it is data monetization. Users contribute their time and skills to Play games, and it is to monetize their time and skills. There is a project called BAT, which allows users to watch advertisements on the browser and monetize advertisements to contribute time and energy. And then in NFT world, users can monetize their ideas by being creative.
In crypto the important thing is the economic incentive mechanism. The question is how many mining tokens are available for users, and what to do after distributing inventive tokens? That's crucial for economic design. There are too many cases where the economic incentive mechanism failed. In 2018, the FCoin featured transaction as mining, and that game could not be lasted after a few months.
3.4 Global Since Day One
Blockchain has no LOCAL market. From the first day of the birth of the Blockchain, it is different from the traditional industry with many regional market. Global Since Day 1 is the Slogan of another institution in the industry. We know that the Axie team is from Southeast Asia, but no one says it is a Southeast Asia project. Its community, developers team and users are all Global.
From asset perspective, in a traditional banking or financial system, assets are separated into different financial institutions. If money sits in a bank, it is in this bank. If money sits in a stock market, it is in a securities account, also insurance is purchased through an insurance account. However assets in blockchain or Web3 are stay the user's wallet, it is very smooth to switch from saving services to trading services, insurance services and asset management services. As long as the wallet is linked to one wallet, it can be traded immediately. The user's assets are all in his wallet and he can control them. However, when comes to traditional financial services, it is separated in different accounts, so efficiency and cost are heavily affected.
Why DeFi can rise from hundreds of millions of dollars to hundreds of billions of dollars is that once users engage DeFi services, it is difficult to back to traditional financial services. At present, 80% of the crypto projects do not accept US dollars, only accept stablecoin or BTC/ETH. Because if investor want to make an investment by USD, it will face the traditional banking’s unfriendly pressure to blockchain space.
Even in free trade economy zone, such as Hong Kong, Singapore, the United States, when a traditional bank received a blockchain related investment transfer, they will question it for a long time, or even could not accept that. Bank would use compliance excuses to refuse this transfer or opening an account by blockchain companies. In the field of blockchain, it is very convenient to use DeFi's financial services, inclusive finance indeed that no permission is required to get engaged with these services. Like recently JP Morgan closed Uniswap founder ‘s bank account without any prior notice.
3.5 DAO prevail
DAO is the real embodiment of code and law. It is to write all rules in code and use code to represent rule by law or rule by man. One of the areas with the greatest impact is the way in which individuals collaborate with their qualifications. Individuals no longer need to be attached to an organization or organization to get rewards from the organization or organization. As a plug-in, individuals can get rewards after making their own contributions. The other is to blur the boundaries of the company, or to expand the periphery of the company, and even the main body of the company may not be needed.
DAO can be divided into two layers. The first layer is the underlying technology layer. DAO, Web3 and blockchain are sometime interchangeable, the bottom layer of which is the decentralized and trusted underlying technology using blockchain. DAO can be used for governance, social networking, service, asset management, creation, collection, and finance.
DAO has extra dimension regarding governance compared to Web3 however in most of time they functioned in similar ways. The reason why DAO is gaining increasingly recognition is not only from theoretical discussion, but also from industry practice, many types of DAO flourished in 2021.
On developer side, by the end of 2021, there will be more than 30,000 Web3 core developers around the world. We can see that the Ethereum ecosystem is still the one with the most core developers.
3.7 Endogenous competition and iteration
Here are some examples of competition from different levels in Web3.
The first example is Uniswap and Sushiswap. Sushiswap forked Uniswap and distrubuting governance tokens to users while UNiswap hesitated to do and thus hijacked substantial traffic from Uniswap. In round two, Uniswap has made a more advanced version in V3, making liquidity can be precisely allocated to certain price ranges. 1inch, in another dimension, just tried to aggregate all the liquidity together through one single app no matter it happened s in Uniswap/Sushiswap or other swaps.
The second is Loot. General NFT is to deliver finished products to users, while Loot is to only give a concept, a semi-finished product. User can also participate to build the NFT leverage their own imaginations, so the user is also a participant to the final piece.
The third one is Opensea, which is a centralized platform and raised funds from VCs, but the community is not delighted to see it to become a VC-IPO thing. A project SOS has decided to issue coins on top of Opensea volume. All Opensea users can get coins through SOS protocol by airdrop. This competition is in another dimension, in terms of decentralization and decentralization.
3.8 Decentralization/centralization in different layers
Finally, centralization and decentralization. Typically Web3 is a purely decentralized application, but in reality there are many centralized products. The founders of the different public chains discussed how to balance the centralization and decentralization of the blockchain at the Wanxiang Summit. Their answer was that the technology layer should be as decentralized as possible to ensure fairness. When it comes to application level, it depends. Some application layer may need to be more centralized to push the project forward.
A few years ago, crypto industry proposed Fat Protocol, in which this blockchain value network heavily rely the protocol level, however less on the application level. Application can reach this goal only when centralized way works.
All areas of traditional finance have their mock in DeFi, with more attractive innovation and evolution models. Take trading as an example. A huge advantage of decentralized exchanges over centralized exchanges is that assets can be completely controlled by users. Decentralized exchanges have grown from less than $1 billion a day to tens of billions. Before, decentralized trading was not popular because the number of customers was not large enough, so the liquidity was not large enough, and the transaction was not continuous. When transaction amount reached ten billion, ten billion, liquidity is very immense.
CeFi are easy ways that traditional financial institutions are entering the blockchain space:
• The first is the compliant ETF. Before there was no batch of ETFs in the United States, GBTC was the most compliant ETF.
• Second There are some traditional commercial organizations that have come into the blockchain space and run their business using blockchain as an asset class. Genesis is a example of using digital currency or digital assets as a trading product. Big financial institutions like Goldman Sachs have their own trading desk.
• Third commercial banks type. Blockfi lends/borrows digital assets and runs in the United States in a compliant way, targeting customers with excessive coins, and also traditional institutions who not satified with current USD rate. Blockfi matched demand and supply, 50% of their income coming from institutional business.
There is also the discussion regarding 2C or 2B. 2C applications can run on decentralized ways, while 2B businesses have more compliance requirements, so there are more centralized structure.
4. Final remarks - Why Web3 is the next Generation of Internet
From the previous examples, we can see many differences between Web3 and the Internet. Decentralized blockchain bases technology allows roles of users and stakeholders to merge. Users will lead the direction of products in the Web3 era, because users will also be the masters of the network, different from traditional corporate structures. Of course, the infrastructure and number of applications for Web3 is still too small, and 30,000+ developers are obviously less than enough to produce multiple application scenarios. However given the history of the web over the last 20 years, we hope that it won't be too long before Web3 becomes widely available.